How To Buy Bitcoins
What is the Best Way to Buy Bitcoins?
The simplest – and possibly safest – way to buy is probably from an online exchange, although you can also buy directly from another person. I personally don't want to deal with a stranger in a coffee shop, and I also think that they charge too much for the privilege of buying from them. Your mileage may differ. Using a debit card at an exchange is my chosen method, and I usually have the coins in my wallet within about 15 minutes.
You can also use wire transfers, checks, or other online methods. It varies from country to country, and even within different parts of each country. If it's done by mail, expect it to take a week or more to receive your coins. And don't be surprised if you see a Bitcoin ATM in your neighborhood soon. You just put in some cash, and get back a code to load the bitcoins into your wallet.
Although PayPal now welcomes you to make purchases using bitcoins, they really don't want you to use their service to buy the actual coins; credit card companies feel the same way. Too many charge-backs could occur, and no one would be able to prove that any coins actually changed hands, since they're not physical items.
4 Greatest Challenges of a Bitcoin Wallet
Once you have your new coins – I forgot to mention you can even buy a fraction of a coin, since it's digital – you'll need somewhere to store them. In the Bitcoin world, that's called a wallet.
An online wallet residing on a exchange company's website may or may not be secure, because of hackers. And you have to trust the company you're dealing with.
A software wallet on your computer may suffer a hard drive crash, or your computer could even be stolen. So make sure you back it up often.
Or you can disconnect your computer from the Internet, so the wallet is totally offline. Very secure, but a lot more time spent on accessibility.
All of these allow you to use the wallet as a bitcoin bank account. It's really a usability/security tradeoff – you get to choose which is more important to you, or a happy medium. Multi-signature wallets are becoming much more popular now, with varying degrees of safety and ease of use.
Online Wallets at an Exchange
New Bitcoin businesses are starting up every week, offering a host of options. The simplest wallets don't offer many choices, but some big exchanges will hold both your fiat currency and digital, allowing you to trade back and forth as desired. Most of these exchanges are not insured against loss, like a bank, but I've noticed a few of the newer ones are.
This is the way to go if you are into heavy trading, but because of KYC (know your customer) and AML (anti-money-laundering) financial laws, you will have to give up some of your anonymity, which is what a lot of people in the Bitcoin world are trying to protect. Seems like a good tradeoff to me, and some countries are less strict than others, and offer more options. The biggest exchanges so far are in the USA, China, and Hong Kong.
Two popular US wallets, Circle and Coinbase, are rapidly expanding worldwide, offering varied services such as use of fiat, credit cards, and bank account linking. If you use wire transfer, there is a fee, and overseas accounts likely have different rules, cost more and can be very slow, so be prepared. These exchanges are acting as the money handler, which protects the credit card company.
You may have heard of Mt. Gox, a Bitcoin exchange in Tokyo… After opening in 2010, three years later it was doing most of the Bitcoin business in the world. A year later, it went bankrupt, with
about 850,000 bitcoins worth $450 million missing and likely stolen. A quarter were later retrieved, the CEO is being sued, and there are investigations into the CEO and what might have occurred, which are not expected to be wrapped up until 2015.
Exchanges are not regulated like banks and, until recently, they weren't insured to protect against theft or going out of business. Circle now provides insurance, and I'm sure others will soon follow. But if someone manages to steal from your wallet because you had a poor password, you usually have no recourse.
Most banks have felt threatened by cryptocurrency, they show discrimination and have even closed accounts of some people obviously in the business, and refused to make transfers for some exchanges.
I should mention face to face trades here too. Sometimes, after asking around, you can get the name of a person who will sell to you, and a site called LocalBitcoins can be used to find a local seller and negotiate prices. Be careful if you're carrying a lot of cash, and be prepared to pay up to 10% as the fee.
What is Mining?
You used to be able to mine your own coins with a personal computer and fast graphics card. Now the pro's use ASIC (application-specific integrated circuit), which is very fast and more energy-efficient, and is only used for mining. But they put out an unbelievable amount of heat still.
And since well over half the number of bitcoins ever allowed to be mined has been passed, the remaining number is shrinking rather rapidly. For cost-effectiveness, most mining is done today by larger specialized groups, in which you can sometimes buy a share. Anyone trying to sell you a ‘mining computer' privately now likely has equipment that is very out of date.
Cloud mining is entering the scene lately, so you don't have to buy equipment, just use a data center and pay to mine for them.
Buying bitcoins is fun, especially if you just want to play at this. It's still new, so it's not yet as easy as you would hope for. But the number of alternatives is rapidly increasing, and there are lots of financial reasons for new Bitcoin businesses to enter the scene, since we're barely at the opening stages. You will soon see pre-loaded wallets, actual physical bitcoins, and even gift cards. Something for everybody!